HSA vs. METC: Maximizing Medical Expense Savings for Canadian Business Owners
If you're a Canadian small business owner deciding between a Health Spending Account (HSA) and the Medical Expense Tax Credit (METC), here's why the HSA clearly wins.
Understanding the Medical Expense Tax Credit (METC)
The METC lets you claim eligible medical expenses exceeding the lesser of 3% of your net income or $2,352. Because it's a non-refundable credit, your savings are limited:
Example:
- Net income: $70,000
- Medical expenses: $4,000
- Minimum threshold (3%): $2,100
- Eligible claim: $1,900
- Actual savings at Ontario's 20.05% rate: $380.95
Plus, you pay medical expenses with after-tax income, inflating your real costs significantly. In Ontario's 43.41% bracket, you must earn approximately $7,120 pre-tax to cover a $4,000 medical bill.
The Advantage of a Health Spending Account (HSA)
An HSA (or Private Health Services Plan) allows your business to pay directly for medical expenses with pre-tax dollars—fully deductible and CRA-approved, without thresholds.
Example:
- Medical expenses: $4,000
- HSA admin fee: $249
- Total cost to business: $4,249
Straightforward, efficient, and immediate savings.
Side-by-Side Comparison
| Item | METC (After-Tax) | HSA (Pre-Tax) |
|---|---|---|
| Medical Expenses | $4,000 | $4,000 |
| Extra Tax Cost | $3,120 | $0 |
| Admin Fee | $0 | $249 |
| Total Cost | $7,120 | $4,249 |
| Savings | $0 | $2,871 |
Why an HSA is the Smart Choice
HSAs offer clear advantages:
- ✅ Pay with pre-tax business dollars
- ✅ No minimum spending requirements
- ✅ Simple, digital claims process
- ✅ Ideal for small businesses across Canada
Switching to an HSA is easy, efficient, and immediately rewarding. Make your medical expenses work smarter—not harder—for your business.